Reports that expatriates are finding Hong Kong a less attractive place to live in and work have raised much concern among the business community.

Business people worry that they will have trouble recruiting foreign talent to help innovate key sectors of its economy, including finance, high-tech and entertainment. The injection of foreign expertise is widely seen as essential to maintaining Hong Kong's lead as an international financial centre servicing the economic development on the Chinese mainland.

Most of the newspaper and Internet reports indicating the attitude shift are based on an annual survey published last month by an international human resources group. Hong Kong's ranking among the list of desirable cities for Western expatriates fell a few notches in the latest survey.

The results of the survey were seen to be further augmented by government immigration figures which show the arrivals and departures of Americans, British, Canadians and Australians dropped by 14 per cent to 79,190, continuing a steady decline in recent years. The number of Western expatriates with work visas reportedly fell 30 per cent from 113,600 in 1998.

A combination of reasons has been cited for the decline, including the rising cost of living, deteriorating air quality, shortage of schools for expatriates' children and rising job opportunities in Shanghai and other mainland cities. A top government advisor is quoted as saying, "There is no short-term solution to any of these problems facing Hong Kong."

Rising property prices have driven up the cost of living in Hong Kong since the economy began to recover some 18 months ago. The depreciation of the Hong Kong dollar in tandem with the US dollar against other major currencies has further pushed up prices of many imports, especially those from Japan.

There is little the government can do to arrest the rise in living costs. But it is unclear how much this has contributed to the perceived decline in Hong Kong's attractiveness to expatriates.

I once asked the head of a US investment firm in the early 1990s whether the skyrocketing property prices in Hong Kong at that time would affect his decision to expand his bank's operation in the city. He said high property prices were never an issue because there was plenty of business to do.

But is there still plenty of business to do in Hong Kong? The answer is not so much about the immigration figures but rather about the performance of the Hong Kong economy, activities on the Hong Kong Stock Exchange and, ironically, swings in property prices.

Continuous strong growth in recent months in all economic sectors, particularly exports is widely seen as an indication and the economic recovery from the seven-year slump is gathering momentum.

Strengthening confidence in the economic prospects has sucked in an increased flow of domestic and foreign investment funds to the local bourse as indicated by the sharp increase in average daily turnover and rising share prices.

The increased turnover on the stock exchange has enticed more and more mainland enterprises to raise capital by issuing new shares. At the end of December, the total amount of funds raised in Hong Kong was US$38.6 billion in 2005. Last year, Hong Kong was ranked the world's fourth-largest fund-raising centre, following New York, London and Toronto. The amount of funds raised by mainland enterprises directly and indirectly through Hong Kong was US$23.2 billion in 2005.

The surge in fund-raising activities has, in turn, created plenty business opportunities for commercial banks, investment banks, stockbrokers, lawyers, accountants, printers and a host of other supporting services.

Bankers and stockbrokers have said that they expect a further increase in fund-raising activities by mainland enterprises this year. What is more, the introduction of new financial instruments, such as real estate investment trusts (REITs), and the continuous active trading in derivatives warrants are helping inject new vigour into Hong Kong's financial sector.

It seems reasonable to assume that the sharp increase in housing cost is a reflection of the underlying economic strength.

To be sure, the cost of living and the general quality of life are important for attracting foreign talent to come to work in Hong Kong. There is little the Hong Kong government can do to ease rising costs. It has reiterated that it is taking concrete measures to combat pollution in co-operation with Guangdong authorities.

But at the end of the day, it's still business opportunity that counts.

Email: jamesleung@chinadaily.com.cn

(China Daily 05/09/2006 page4)